Recently, SEC Chairman Gary Gensler issued new warnings about cryptocurrencies amid Bitcoin’s surge to a new all-time high. He highlighted concerns about abuses and fraud within the crypto space and warned investors about the speculative and volatile nature of Bitcoin.
While Gensler refrained from commenting specifically on pending filings, he highlighted broader challenges in the crypto industry, including risks associated with intermediaries aggregating digital assets without providing adequate disclosures, which could put investors at risk.
The latest data shows that the rise of fraud in the crypto industry is correlated with the rise of Bitcoin.
2023, biggest year for crypto fraud
Based on Chainalysis data, scams remained a significant driver of cryptocurrency crime in 2023, generating at least $4.6 billion in revenue.
The FBI’s 2023 Internet Crime Report reveals that losses due to crypto-investment scams in the US rose to $3.94 billion, up 53% from the previous year’s $2.57 billion. Investment scams became the most common Internet crime in 2023, accounting for more than a third of total reported losses of $12.5 billion. Source: FBI
Ransomware attacks saw an 18% increase in 2023, with reported financial losses rising 74%, reaching a total of $59 billion. These figures underline the significant threat cybercriminals pose, particularly to critical infrastructure sectors.
Online fraud losses exceeded $12.5 billion in 2023, which is a 22% increase from the previous year. Business email compromise scams, which target both companies and individuals, contributed $2.9 billion to total losses in 2023.
Why fraud is on the rise
When the market sentiment is strong, more people will look for high yield opportunities.
According to research by Chainalytics, scams tend to generate less revenue during crypto market downturns, as shown in the graph that correlates fraud revenue with Bitcoin prices in 2022. Source: Chainalysis
Most popular schemes
According to Chainalysis, scams remained a significant driver of cryptocurrency crime in 2023, generating at least $4.6 billion in revenue.
The BBB’s annual report on scams in 2023, based on 67,000 fraud probes, highlighted creative methods scammers use to defraud investors. According to the BBB, approximately 80% of Americans targeted by crypto and investment scams in 2022 suffered financial losses. Furthermore, the percentage of individuals reporting losses to romance scams increased by more than 300% compared to 2022. Source: BBB
Pump and dump schemes are rampant, taking advantage of newly created tokens to artificially inflate prices, allowing scammers to cash out at the peak. Chainalysis highlights that out of more than 370,000 tokens launched on Ethereum in 2023, only a fraction achieved significant liquidity. Source: Chainalysis
Romance scams are on the rise, increasing 85-fold since 2020. Starting on dating apps, scammers build trust over time before tricking victims into joint crypto investments, resulting in significant financial losses.
The Better Business Bureau reported that cryptocurrency and investment scams have become the riskiest type of cons in the US, with fraudsters regularly defrauding victims out of thousands of dollars.
According to the BBB’s annual report on the biggest scams of 2023, based on 67,000 reports of scams, scammers have come up with creative methods to scam investors. About 80% of Americans targeted in these scams lost money, with the median amount lost being $3,800.
Hackers
Hackers often use social media, video game platforms or text messages to contact individuals and brag about their financial success as a result of a crypto investment. Next, they persuade the victims to invest as well. Source: Chainalysis
The rise in hacking coincided with increased investment by US investors during the pandemic, which led to losses due to cyber attacks on platforms with weak cybersecurity. For example, North Korean cybercriminals alone stole $1.7 billion in cryptocurrencies, setting a new record and highlighting the important role of cryptocurrency theft in the country’s economy.
As scammers use increasingly sophisticated tactics, such as romance scams, identifying associated addresses becomes more challenging. Romance scammers often communicate directly with victims through private channels such as text, making it difficult for blockchain analysts to identify these addresses as phishing scams.
This likely leads to undercounting of scam activity, especially in recent years as romance scams have become more common.
How to protect yourself from scams
The risk is inherent in the world of crypto trading due to its decentralized nature and irreversible transactions. These factors expose merchants to vulnerabilities, making it difficult to recover funds in the event of a scam.
Staying vigilant, identifying scams early, and being cautious in your crypto transactions are crucial strategies for self-defense. By staying aware of potential risks and taking proactive measures to mitigate them, merchants can better protect themselves from falling victim to scams and minimize potential losses.
Disclaimer for Uncirculars, with a Touch of Personality:
While we love diving into the exciting world of crypto here at Uncirculars, remember that this post, and all our content, is purely for your information and exploration. Think of it as your crypto compass, pointing you in the right direction to do your own research and make informed decisions.
No legal, tax, investment, or financial advice should be inferred from these pixels. We’re not fortune tellers or stockbrokers, just passionate crypto enthusiasts sharing our knowledge.
And just like that rollercoaster ride in your favorite DeFi protocol, past performance isn’t a guarantee of future thrills. The value of crypto assets can be as unpredictable as a moon landing, so buckle up and do your due diligence before taking the plunge.
Ultimately, any crypto adventure you embark on is yours alone. We’re just happy to be your crypto companion, cheering you on from the sidelines (and maybe sharing some snacks along the way). So research, explore, and remember, with a little knowledge and a lot of curiosity, you can navigate the crypto cosmos like a pro!
UnCirculars – Cutting through the noise, delivering unbiased crypto news
